Q4 2023 Sun Country Airlines Holdings Inc Earnings Call
Participants
Christopher Allen; IR; Sun Country Airlines Holdings, Inc.
Jude Bricker; CEO; Sun Country Airlines Holdings, Inc.
Dave Davis; President & CFO; Sun Country Airlines Holdings, Inc.
Duane Pfennigwerth; Analyst; Evercore ISI Group
Catherine O'Brien; Analyst; Goldman Sachs Group Inc
Katherine Sun; Analyst; Morgan Stanley
Mike Linenberg; Analyst; Deutsche Bank
Brandon Oglenski; Analyst; Barclays
Christopher Stathoulopoulos; Analyst; Susquehanna
Presentation
Operator
Good day, and thank you for standing by, and welcome to the Sun Country Airlines Fourth Quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. Since the speaker's presentation, there will be a question and answer session to ask a question. During the session, you'll need to press star one one on your telephone. You will then hear an automated list advising Johannes Ries. So a short question, please press star one. Once again, please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Christopher Allen, Director of Investor Relations. Please go.
Christopher Allen
Thank you. I'm joined today by Jim Baker, our Chief Executive Officer, Dave Davis, President and Chief Financial Officer and a group of others to help answer questions.Before we begin, I'd like to remind everyone that during this call, the Company may make certain statements that constitute forward looking statements or remarks today may include forward-looking statements, which are based upon management's current beliefs, expectations and assumptions and are subject to risks and uncertainties.
Actual results may differ materially. We encourage you to review risk factors and cautionary statements outlined in our earnings release and our most recent SEC filing. We assume no obligation to update any forward looking statements you can find our fourth quarter and full year 2023 earnings press release on our website at ir dot Sun Country.com. With that said, I'd like to turn the call over to Judy.
Jude Bricker
Thanks, Chris. Good morning, everyone, and thanks for joining us today. Our diversified business model is unique in the airline industry due to the predictability of our charter and cargo businesses, we are able to deliver the most flexible scheduled service capacity in the industry. The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages, we'll be able to reliably deliver industry leading profitability throughout all cycles. We have much to be proud of and the way we finished 2023, many of the challenges of the post-COVID period are fading as we move into 2020 for our operations in the third quarter showed significant year-on-year improvement across every major major operating metric, D0 A14, completion factor and mishandled bag rate. Our completion factor, we only cancelled one scheduled service flight during the entire quarter, A14 increased 13 percentage points year on year without an increase in Target block times. In 4Q, we produced a declining year on year CASMex for the first time since COVID, one of the main contributors to our improving cost and operational performance is that we've been able to staff the airline closer to optimal. In fact, we've seen better staffing metrics across every major labor group. Improved staffing has allowed us to allocate additional peak capacity in scheduled service and to take advantage of close-in charter demand, maintaining speed peak schedule allocations has allowed us to fly almost 15% more ASMs in 4Q, with adjusted travel declining only 8%. We continue to operate in a strong demand environment across all three segments of our business with scheduled service continuing to receive the majority of our growth capacity, a trend we expect to continue into 2024.
Congratulations to the entire Sun Country team that delivered record full year 2023 revenue full year passenger volume and full year operating margin.
I wanted to highlight a few things that I'm excited about in 2024, I feel like we have good control of our unit costs. While we will continue to face headwinds, particularly with the heavy checks cycle of our fleet, we should be able to continue to lead the industry in cost trends going into 2024, demand is holding up really well for 1Q. We face challenging comps as we lap the exceptional yield environment of winter 2223 for 1Q, we are currently scheduled to fly over 15% more ASMs than prior year, with only an expected mid single digit decline in unit revenues. These positive revenue trends are mostly a result of growth being heavily weighted to peak period due to lessening staffing constraints. A few examples in December 2023 we flew 120% more ASMs in scheduled service during the last 14 days of the month as compared to the first 14 days industry capacity shifted about 3% in 1Q 2020. For March, we'll have about 60% more scheduled service ASMs than January. This was 47% in 1Q of 23. This schedule variability along with our cost structure is the moat around our business and is made possible by our multi-segment model. On the fleet side, we have three aircraft in various stages of delivery. These aircraft will be part of our control fleet of 63 airplanes. By the end of 2Q, we expect to be able to grow ASMs by around 40% versus 2023 levels with lease returns, utilization increases and upgauging. In addition to these airplanes, that should give us two to three years of growth while simultaneously producing exceptional free cash flow yields that come and that combination rarely happens in our industry. We have many projects that should help us keep momentum on operational costs and revenue trends into 2024 to highlight a few. In 2024, we were able to rebid we are able to rebid our credit card agreement, which we expect to result in materially better economics in 2023, we launched bag scanning technology that has had a material impact on MBR. That solution will be rolled out to our stations in the coming months. We automated our passenger recon process, which allows us to take more scheduled service risk during peak periods, we'll launch our app in a few months. Our crew rostering system will transition to PBS. later this year. And all the investments we've made in crew training are starting to pay off with the lowest training footprints we've seen since COVID.
Finally, our growth brands have very little risk. We have high confidence in our Minneapolis expansion based on prior success. Further, based on ongoing discussions with Charter and cargo customers, I expect those segments to be able to keep growth pace with our scheduled service opportunities.
And with that, I'll turn it over to Dave.
Dave Davis
Thanks, Jude. We're pleased to report strong Q4 results, including an adjusted operating margin of 7.4%, which was well ahead of our guidance. Both our quarterly and full year 2023 results again demonstrate the resiliency and earnings power of our unique diversified business model 2023 was the third consecutive year of profitability for Sun Country and on an adjusted net income basis with one exception, we've been profitable and every full quarter since going public in March of 2021, we believe we finished the year with the highest or among the highest adjusted pretax margins in the industry at 9.9% this result was very similar to 2019 despite fuel being 38% higher this year. It's important to understand that our operating model is almost the opposite of the high utilization carriers. Our passenger business wise when demand and unit revenues are highest and we fly much less and off peak periods. The modest increase in unit costs this produces is more than offset by the resulting improvements in unit revenue. Additionally, our diversification across scheduled service, Charter and cargo operations leads to resiliency through business cycles. Our strong 2023 results allowed us to return 68.6 million to shareholders in the form of share repurchases since 2022, our share repurchases have totaled 93.6 million. I'll turn now to the specifics of our fourth quarter and full year results. First to revenue and capacity in the fourth quarter, total revenue grew 8.1% versus Q4 of 2022 to $245.5 million. Scheduled Service revenue plus ancillary grew 4.6% to 163.8 million scheduled service travel decreased 9.1% to $0.1073 as scheduled, ASMs grew by almost 15% for the full year. Total block hours increased by 9.8% Brent versus 2022. And our total revenue was $1.05 billion or 17.3% higher than prior year 2023 scheduled service plus ancillary revenue grew 15.7% to 730 million. Full year scheduled service traffic increased 7.6% on an increase of 7.2% scheduled ASMs.
Looking forward to Q1 of 24, we're anticipating scheduled service ASMs to grow approximately 15% versus Q1 of 23, with scheduled service plus ancillary revenue growth outpacing the 4.6% year over year growth we saw in the fourth quarter. Charter revenue in the fourth quarter grew 8.8% to 46.9 million on block-hour growth of 7.8%. A portion of our charter revenue consists of reimbursement from customers for changes in fuel prices as we do not take fuel risk on our charter flying Q4 fuel prices dropped by 14% year over year. If you exclude if you exclude the fuel reimbursement revenue from both Q4 of 23 in Q4 of 22. Charter flying revenue grew 11.1% during the period, easily exceeding block-hour growth, producing a 3.1% increase in charter revenue per block hour versus last year. For the full year, charter revenue was $190.1 million, 17.6% higher than full year of 22. Charter revenue under long-term contracts was 80% of the total charter block hours as contracted charter flying grew 25.7% versus 2022. Fourth quarter cargo revenue grew 3.6% to 25.3 million on a 1.8% increase in block hours. For full year 2023, cargo revenue grew 10.4% to 99.7 million on a 5.8% increase in block hours. As you can see, we're continuing to grow at a profitable measured pace. Q1 of 24 total block hours are expected to grow between 8% and 11%, while total revenue should be between 310 and $320 million.
Turning now to costs. Fourth quarter. Total operating expenses increased 7.7% on a 10.4% increase in total block hours. Adjusted Cason declined by 2.2% versus Q4 of 22. During the quarter, we saw solid cost control across the Company. As our pilot availability issues have eased, we've been able to achieve our growth plans and we're benefiting from the operating leverage in the business. Importantly, more pilot availability means fewer hours paid at premium rates and lower unit costs. For the full year, total operating expense increased 9.9% in line with total block-hour growth of 9.8%. Full year adjusted cash increased 6.4% to $0.075, with increases in the first half of the year driving this increase.
Regarding our balance sheet, our total liquidity at the end of Q4 was $205 million, which reflects $13.5 million in share repurchases during the quarter. As of January 31st, our total liquidity was 234 million. In 2023, we spent 218 million on CapEx, almost 200 million of which was for aircraft and engines. We expect these aircraft to provide the bulk of the passenger lift we need through 2025 as such we anticipate our full year 2024 CapEx to be approximately 100 million and our 2024 year ending in-service passenger fleet count to be 44 aircraft in addition to these aircraft, we expect to have three aircraft being inducted into our fleet and four aircraft on lease to other carriers. We expect to redeliver to Sun countries throughout 2025. We anticipate strong free cash flow generation in 2024, continue to maintain a very strong balance sheet. Our net debt to adjusted EBITDA ratio at the end of 2023 was 2.2 times, down from 2.7 times at the end of 2022. Since we do not have a significant debt burden, we have flexibility in how we deploy our cash.
Turning to guidance, we expect Q4 total revenue to be between 310 to 320 million on block-hour growth of 8% to 11%. We're anticipating our cost per gallon for fuel to be $3 and for us to achieve an operating margin between 17% and 21%. The fundamentals of our unique diversified business remain strong, and our model is highly resilient to changes in macro economic conditions. Our focus remains on profitable growth.
With that, we'll open it for questions.
Question and Answer Session
Operator
(Operator Instructions) Duane Pfennigwerth, Evercore ISI.
Duane Pfennigwerth
Hey, good morning. Thank you. Just on the this improved utilization and your ability to kind of flex back up again in the peaks, which which segment would you say is most constrained or maybe asked differently, how would you characterize the margins or margin opportunity across the three segments?
Jude Bricker
Schedule services by far the highest margin and most affected by staffing constraints. So think about it like a like an S-curve or a sine wave. And if we have staffing constraints, that kind of pushes the peaks down because we can only produce a certain amount of block hours in any given period. So monthlies, typically the constraints and that yields these really expensive opportunity costs during peak periods. That's sort of becoming less of an issue as we staff the airline appropriately.
Duane Pfennigwerth
That's helpful. And so this the percentages that you put out there for March versus January, is that optimal? Or do you think as we kind of roll through the year, there's maybe even more peak capture, you could realize?
Jude Bricker
The latter. There's definitely more opportunity in March. So a good comp would be to look back at utilization in 2019 when we weren't constrained. And there's still about two hours per aircraft per day of production that we aren't able to achieve in 2023 or 2024 versus versus 19 out the fleet is older than it was then a little bit different dynamics as it relates to congestion in airports and things like that. So we won't achieve what we achieved them. But there's definitely plenty of opportunity for incremental flying. And the important aspect of that is that as we add more flying, it's coming kind of mid week March. But as you compare that opportunity to the average yield for the quarter?
It's still above average. So we're increasing volume and unit revenues by growing peak period capacity.
Duane Pfennigwerth
Yes, that makes sense. And just for my follow-up. I don't know if there's any way to frame it, but in terms of premium pay overtime that you incurred in 2023 that you feel like you won't incur kind of going forward in any way to size that order of magnitude?
Dave Davis
I'm not sure I can give you order of magnitude. I would just say that this is sort of what our current outlook is as we go forward, there's a minimum level of premium pay just because of the way that our contract works in any given month. So we'll need to pay that in 24, just like we did in 23, just like we did in 22. We only have two months right now dialed in at higher levels of premium pay in 2024 than the minimum amounts.
So I think I'll just comment on the overall staffing situation. You know, things have gotten significantly better. We've talked now for several quarters about the initiatives that we've undertaken here to trying to improve the availability of captains in particular, I would say that those are bearing fruit, and we're seeing the kind of growth that we need and the kind of attrition levels that continue to occur favorably for us. So I think premium pay is sort of where it needs to be as well as on in our levels of upgrade and attrition. Now we could we could use more because, as you just talked about, there's more opportunity for growth here, but I think we're seeing that really steady progress.
Duane Pfennigwerth
Okay. Nice to see it come through. Appreciate the time.
Jude Bricker
Thanks, Duane.
Operator
Catherine O'Brien, Goldman Sachs.
Catherine O'Brien
Hey, good morning, everyone, and thanks for the time. I was just hoping to get some high-level puts and takes on 2024. How should we think about scheduled capacity growth through the rest of the year or just capacity growth overall falling that 15% growth in 1Q just in the context of you already have locked, you already have aircraft locked in. Sounds like pilot availability is getting much better. And then on the cost side, I did some quick math, and it looks like to get to the midpoint of your operating margin guidance. I'm getting the cost ex-fuel on a block hour basis up about 4%. Is that the right level to think about through the year as we see efficiency build and or Visa. I know you guys made the comments about you think you're going to lead the industry on the CASMex basis. I wasn't sure if that was it cost GAAP comment or year-over-year performance, and there's a couple in there, but thank you.
Dave Davis
Yes, let's let me start with the with the cost question for next year. I don't have the block hour numbers off the top of my head, but let me give you give you just some some cash, some indicators, which I think are probably very similar to block hour. On the chasm front, I think you what we're expecting now is chasm to basically be flat to up low single digits.
And here's here's the rationale on I think I mentioned last quarter, we have a program underway of accelerating some maintenance spend into 2024, which will have a modest bump to chasm, but pay significant dividends in 2025 and 2026 in terms of reduced unit costs by sort of bringing some more activities forward and packaging them into into the current checks. So that's going to be a little bit of a cost bump. But I think right now, looking forward, we're seeing, like I said, flat to low single digit chasm growth.
Jude Bricker
And my comment around relative chasm performance was mainly to identify and to kind of point out that were not subject to the major challenges, particularly on the fleet side that the rest of the industry is dealing with. So we don't have Geared Turbofan. We're not subject to new aircraft delivery delays. We don't expect to do any engine performance restorations aren't subject to OEM. escalation in 2024. We don't have MAX nines. There's just not that much pressure on our costs relative to the industry. So I think we'll continue to do to produce better trends, maybe not on an absolute basis. And then I guess on your question on capacity growth at like generally, we would think about it mid teen block-hour growth. Most of that will be allocated to skid service.
Catherine O'Brien
Got it. Super helpful. And then I know a lot of your competitors have spoken to stronger domestic trends as capacities come down. I know your model is more immune to, you know, overcapacity in the troughs when which has been the toughest periods when capacity is out of whack, but has this had any impact on pricing in the peak for you flex up your flying and any early reads on spring break or somewhere that you want to call out, you find encouraging things with time.
Jude Bricker
But yes, I mean, as I mentioned in my comments, as you know, spring breakup last year was spectacular and probably not repeatable and so we've seen a bit of a settling consistent with comments that you've heard other carriers make in the Mexico Caribbean markets, but this year will produce substantial travel and premiums to pre-COVID levels as consistent with my comments in the last several quarters, the domestic markets doing really well. I think as you know, we're seeing a rebound in Florida, which is important to us as we lap the E and challenges that West Florida was facing last year, sort of broadly, I think things are really good, consistent with other folks' comments, brands here with me anything and that's absolutely the case are.
Dave Davis
And the airline is digesting well, 20% capacity growth in March. So just speak to how the brand has been built in Minneapolis. We definitely continue to be and work very hard to be the leading leisure airline in that marketplace. And I think our results speak to that point and we're going to compete aggressively for that title going forward.
Catherine O'Brien
Great. Thanks for the time.
Operator
Ravi Shanker, Morgan Stanley.
Katherine Sun
The morning, everyone. This is Katherine on for Ravi. You for taking my question. I was just curious about what you kind of mentioned this in your last question. But as the floor of chasm across the industry is expected to potentially push resume up, I was curious if that helps you guys take price or share scenario yes, I mean, generally, yes.
Jude Bricker
But the things that make us less subject to capacity, you know, effects also reduce the impact of sort of unexpected grounding of the GTF fleet for example, we're just not we're not for good and for bad, we're just not as exposed and to the industry machinations, but it did take capacity out of the system as a net positive, I think, but we'd be like the secondary tertiary effect of like reallocation of capacity to backfill coal on the margin, some capacity of our network, maybe from ROA.s, but it's not material.
Katherine Sun
And just as a quick follow-up. So I know close-in bookings across the industry were really strong in last year and even probably 2021 and then kind of dropped off in 23. What is that looking like now? And I'm curious if you guys what normal behavior might look like for close-in bookings, some country.
Jude Bricker
Austin remains really strong. I mean, we have the shape of the booking curve, which is sort of like aggregate bookings made any given time is very similar to pre-COVID levels. But at a higher fare. And so you know that I think the future looks a lot like the past in passenger behavior, I think yes, and things are really positive for anything else. On that you the scale.
Katherine Sun
Thank you.
Operator
Mike Linenberg, Deutsche Bank.
Mike Linenberg
You guys hear me. I get to know now we can start off. Just to follow up on. I actually have two questions here, but one a follow-up on Duane's question where you've talked about really being able to take advantage of call the marginal opportunity here. And I think in the past, you've characterized that you know being able to it will now take advantage of the fact that you can have a fixed cost base, you're able to sort of capitalize on that. I think you've characterized it as like a 40% operating margin incremental operating margin as you better utilize your asset base, you did sort of, you know, sort of backtrack and say, well, we're still going to be off of that two hours from where we could have been or where we were back in 2019 of that magnitude on a, call it the incremental opportunity here. Does that still come at? It was my math right, somewhere in the 40% range or so? Is that how we should think about it?
Jude Bricker
Yes. I mean so what we're talking about there is not an operating margin, but rather a contribution margin. So profits in excess of variable costs, revenue in excess of variable cost. And yes, I mean, our march back variable contribution is in excess of 40%. So is it in July? So is it in the back of December? So as we grow those markets and grow those periods of time in the calendar, we would expect that level of contribution from those incremental flights? Absolutely.
Dave Davis
Yes, Mike, I think I think what I think one of the things on the utilization comment, 2019, there were some unique things, particularly around military flying was really strong and other things that we that we were able to pick up. We're not saying that there's not two hours of opportunity. We're just there's this opportunity. We're just not maybe going to get back to the nine-plus hours that we did in 2019 because there were some unusual things, but there's plenty of opportunity on the utilization front to drive high variable contribution flying.
The downward pressure on utilization is going to come from the check cycle that Dave mentioned earlier, we have a higher sparing ratio than we've had in the past, and we're just we're going to we're going to make sure we execute real well. And operations, and that requires a little bit of conservatism on utilization.
Mike Linenberg
Great. And then just my second question. As we go back to fleet procurement and the like, and I appreciate your point about that. You're not dealing with the issues that a lot of other carriers are whether it's the GTF or the grounding of the MAX nine. But now it does seem like that going forward, one of the large OEMs basically will really only have one airplane that people care about. As you know, there's not a lot of interest in the MAX nine, it's going to be all about the MAX eight. And it seems like that's probably going to be the primary airplane of choice over the next couple of years, which will probably put a lot of upward pressure in the used market for eight hundreds and even use 900 ERs or maybe even seven hundreds.
What are you seeing in the market and down, it was obviously encouraging to see that you picked up two more eight hundreds from flydubai, so that plus the five from home. And so you have seven Shells of growth. Have you identified additional shells out there that are maybe that you've that you're working on right now? And what are you seeing on the pricing for these used airplanes? It would seem like that bid for those types of airplanes that have actually moved up given the constraints at the OEMs. Any color on that would be great. Thanks.
Dave Davis
But Mike, I think you, Kevin and operating lessors and every order they say how strong the market is for residual value, this is one-time that they're right. There is going to work. I mean, there are other challenges that the OEMs are having is kind of trickling into the used aircraft market and availability and pricing are both moving in the favor of owners of aircraft and we are comfortable then not having to do any deals for a few years and just cash flow. And we remain in the market. We're very active in airplanes out there trading hands. We're at the table, but our the bid-ask for us has really widened over the last several months. And and as you know, we only originated one aircraft over the last 12 months, and we may continue on that trend for the foreseeable future, say, two years.
The point I was making, though is that we could grow this airline 40% without any incremental originating aircraft deals.
Mike Linenberg
That's great. That's great color. Thanks. Thanks, everyone.
Operator
Brandon Oglenski, Barclays.
Brandon Oglenski
Hey, good morning, guys, and thanks for taking the question for you. Dave, can you talk to us looking into April and the second quarter because you guys do have just based on the model and your peak are scheduled out in Minneapolis in 1Q, 2Q can be a little bit softer. So how do you see at least, you know, first half of the year playing out from a profitability perspective.
Dave Davis
So just a little bit at expectation setting, I mean, Easter's a lot earlier this year than it was last year. And so that will have a negative effect on April on a year-over-year comp basis, which is expected. And we had a really spectacular April of last year as I mentioned, that the winter of last year was really special, and that won't repeat itself. But just the trends that we've seen as we kind of lap the COVID recovery I've broadly maintained themselves. I mean, were we're looking at 25, 30% travel and sort of broadly over 19, you've got to adjust for these calendar shifts. But generally fares have kind of reset themselves at a stable, but a much higher level from 2Q for us is not nearly as good as 1Q and that'll obviously be the same this year but we're certainly really bullish about where we're booking right now.
Jude Bricker
Granted. Yes. And I would also say that you've seen a continued ability of us to add capacity where we know we're going to be profitable sort of throughout the process and we work really closely with the operating team. So I would say there's a lot of work going on to understand where we can add some incremental capacity in the second quarter. So those keeping score with BO. and those sorts of things, it's not all in there yet. And I would echo Jim's sentiment. We understand what the world's going to look like in the second quarter and we have a plan for.
Dave Davis
So is it at a really good point? I mean, so our scheduling philosophy is one where we hold back some capacity and kind of allocated as bookings matriculate. And I think that that's the right way to run our business. Many airline schedule above the competitors notice and then they kind of cancel down as bookings have we have the opposite. So we'll have this little bit a couple of percentage points of capacity to allocate as we get closer, which will help as well.
Brandon Oglenski
I appreciate that. And then, Dave, maybe on in but patience and the offsets. I know you mentioned that you know, maybe lower premium pay this year, but what else do you have going on on the cost side? These will speak to?
Dave Davis
Well, I mean, I think I think cost control across the Company has been very solid, Tom, you know, on the US, so there's a lot of operating leverage here sort of as we grow, like we talked about a minute ago here on the aircraft side, we've basically got the shells we need to to fly in 2024 level so that, you know, operating leverage kicks in and we get a cash benefit from that. And you've also got a number of IT projects that we've been working now that I think are going to contribute to a lower chasm as well with the exception of this maintenance issue, which is sort of a decision that we've made, costs are well in control. I can't point to any one initiative. I just think across all of the areas of our company right now on costs are well in hand. Thanks, Brandon
Operator
(Operator Instructions) Christopher Stathoulopoulos, Susquehanna.
Christopher Stathoulopoulos
Good morning. Thanks for taking my question. What percent of your charters currently under contract and how much is up for renewal this year on?
Dave Davis
We have about 85% of our charter revenue right now is under long-term contract on, you know, as these pilots in other staffing issue to sort of resolve themselves, we want to drive a little more ad hoc revenue on. But right now, like I said, 85% ish or so is is is long term.I think we have any significant contracts up now.
Jude Bricker
And we're working closely with any that are. So we feel really good about the portfolio and they like what we're doing and we like being connected with them.
Christopher Stathoulopoulos
Okay. Okay. Second question, see the sequential decline in block hours and cargo. Is that just reflective of a weak peak or perhaps a regional shift in Amazon's network between carriers system that I don't know if
Dave Davis
That's a result entirely out of the C-check cycle and some weather disruptions that we had nothing to do with it. I mean, I can't comment on anything about what Amazon's planned book.
Christopher Stathoulopoulos
Okay, great. Thank you.
Operator
Catherine O'Brien, Goldman Sachs.
Catherine O'Brien
Again. Thanks so much for the follow-up on the if you could just one quick one on on the share purchase program. You guys were pretty active the last two years. I think you've got 11 million, 11.5 left and CapEx is stepping down materially. You know, I guess any comments on are there any changes to how you're thinking about capital allocation? Or or should we just stay tuned on the shareholder returns front? Thanks so much.
Dave Davis
Yes. First of all, your comment on the free cash flow generation is spot on. I mean our CapEx at the company will drop by more than half between 23 and 24 on if we deliver the kind of results that we think we're going to deliver. We're going to generate a lot of free cash and then we'll have to decide what we're going to do with that cash, you know, there is more share buyback is that we would definitely look at. We don't have a lot of debt that's economical to paid out. We don't have a lot of debt period. We don't have a lot of debt that's economical to really pay down early with sort of one exception. So what I think is as we go forward here, there will be decisions around do we do share buybacks. Do we pay down this one piece of debt that we can on?
We're going to fully fund and we have been fully funding cost reduction and revenue generative initiatives on particularly on the IT side, we'll continue to do that, but that should be reflected in the 100 million I talked about for 24 CapEx. So we're in a good position to have a lot of flexibility on what we do, how we deploy our cash and 24 and 25.
Catherine O'Brien
That's great. Thanks so much.
Operator
Thank you. And I'm currently showing no further questions at this time. I would like to turn the call back to Mr. Fricker, Chief Executive Officer for closing remarks.
Jude Bricker
Well, thanks, everybody, for joining us today and have a great day and we'll talk to you in 90 days.
